Discount rates are the percentage-based fees required to process the credit card transaction of a merchant and are paid to a credit card processing organization and the acquiring bank for the expense and time required in handling the electronic transaction. In the traditional three-tier pricing scenario these rates have three levels – Qualified, Mid-Qualified and Non-Qualified. The account use by the merchant through a bank is primarily what these discount rates cover. These rates also cover assessments, dues, provider markups, network charges, and an interchange fee, something that a merchant’s acquiring bank makes payment to a customer’s issuing bank at the time that merchants accept credit cards.
The business type and the scenario that the credit card may be processed in determines the discount rate percentages Retail transactions, where a credit card is presented, always has a smaller discount rate than a mail, online or telephone transaction because in these cases the credit card is absent and there is a higher risk of fraud. Additional factors – such as a card being keyed with an AVS code or without one, or its being a corporate card or rewards – also influence the ultimate rate.
Different Situations, Different Rates
Usually, a discount rate for every sales transaction owed by a merchant to the bank to process credit cards is a tiny percentage. Say that the discount rate stands at 2.36%, for example. The discount rate charge that is paid to the acquiring bank is $2.36 for a purchase of $100. There are different discount rates per every transaction type: Mid-Qualified, Non-Qualified and Qualified. Non-Qualified is, higher than Mid-Qualified and Mid-Qualified is always higher than Qualified.
The Non-Qualified rate is the highest percentage rate that a merchant is charged whenever they accept a credit card for a sales transaction through their store or business. Almost all transactions that are not Mid-Qualified or Qualified will stand at this rate. Non-Qualified rates apply for many reasons that include:
- The credit card of a customer being keyed into a credit card terminal instead of magnetically swiped,
- the lack of address verification,
- the use of a business or special rewards credit card,
- every required field of information not being completed,
- a merchant does not settle a daily credit card batch in a specific time frame from the first point of authorization (usually 24 to 48 hours).
Non-Qualified rates may be significantly higher than Qualified rates, which can cost a merchant provider a great deal more in interchange fees, as the merchant account providers markup these discount rates.
Sometimes merchants indicate that they are quoted one rate by a merchant service provider and find different rates are on their monthly statements. Merchants can, however, experience a surcharge increase or rate increase because of the type of card that their customers use, such as rewards cards flight miles cards. Another reason for the increase of processing costs is incorrectly processed transactions made by the merchants themselves.
Holding the Line
How can merchants avoid being charged these surcharges and still qualify for the best rate possible? Simple: follow the required procedures to the letter. Even in an ideal retail setting when swiped account transactions normally achieve a Qualified discount rate, the lowest one possible, the rates can drop to a Non-Qualified rate easily. Qualified rates occur when the credit card holder uses a standard consumer credit card, the cardholder is present, the card is swiped, and the transaction becomes batched inside of a day. When any of these criterion are not met, a merchant can be downgraded and charged a Non-Qualified or a Mid-Qualified rate for the transaction, which therefore increasing the cost of doing business.
There are various factors that determine the rate merchants are assessed for their credit card sales transactions. If merchants know that they will be accepting certain credit card types that will usually fall into the Non-Qualified category just described, it is advisable for those merchants – when they set up a credit card processing account – to make sure what their Non-Qualified rate will be. In the end, a smart merchant will find out about every one of the fees involved ahead of time when signing up for a merchant account.